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Ironwood Pharmaceuticals Reports Second Quarter 2020 Results; Delivered GAAP Net Income of $25 Million and Adjusted EBITDA of $33 Million

August 6, 2020 Off By BusinessWire

– Grew LINZESS® (Iinaclotide) total prescription demand by 9% year-over-year; new-to-brand prescription demand grew >15% in June 2020 compared to March 2020 –

– Made important updates designed to strengthen IW-3718 Phase III program; FDA indicated that long-term safety study for IW-3718 is not required for an NDA submission –

– Reinstating full year 2020 total revenue and LINZESS net sales growth guidance; reiterating adjusted EBITDA guidance –

BOSTON–(BUSINESS WIRE)–Ironwood Pharmaceuticals, Inc. (Nasdaq: IRWD), a GI-focused healthcare company, today provided an update on its second quarter 2020 results and recent business performance, as well as an update related to the impact of the COVID-19 pandemic on its business.

“Strong execution resulted in another solid quarter, highlighting the fundamental strength and resiliency of our business as we continue to advance our mission of advancing GI diseases and redefining the standard of care for millions of GI patients, despite the challenges posed by the COVID-19 pandemic,” said Mark Mallon, chief executive officer of Ironwood. “We are disappointed by the Phase II results for MD-7246; however, our strategy remains clear and we believe we are well-positioned for long-term growth, evidenced by continued LINZESS performance, the updates we made designed to strengthen our IW-3718 Phase III program, and our fifth consecutive profitable quarter.”

COVID-19 Business Impact

The impact of the COVID-19 pandemic continues to be far-reaching and unpredictable in the U.S. and around the world. Ironwood is taking important actions designed to help mitigate the impacts of the COVID-19 pandemic on its business and is following applicable federal, state and local health authority guidance.

  • Focused on Safety of Ironwood Colleagues and Communities. Many of Ironwood’s customer-facing employees have resumed in-person work practices; however, they are limited in the number of in-person details they are able to conduct due to social distancing protocols and other restrictions related to the COVID-19 pandemic. Ironwood is monitoring the impact of the COVID-19 pandemic in those territories where customer-facing employees have resumed in-person work practices, and in some cases, has paused the in-person work practices as a result of the impact of the COVID-19 pandemic in those territories. Those customer-facing employees who are not providing in-person services continue to provide support to their customers virtually through telephone and web-based technologies. The majority of Ironwood headquarters employees continue to work remotely. (Read more…)
  • Maintaining Access to LINZESS. In collaboration with its U.S. partner, AbbVie Inc. (together with its affiliates, AbbVie), Ironwood remains focused on maintaining the availability of and access to LINZESS for adult patients in the U.S. suffering from irritable bowel syndrome with constipation (IBS-C) or chronic idiopathic constipation (CIC).

    • LINZESS total prescription demand increased 9% in the second quarter of 2020 compared to the second quarter of 2019, per IQVIA.
    • To date, the COVID-19 pandemic has not caused significant disruptions to manufacturing operations nor supply of LINZESS in the U.S. Ironwood believes there is sufficient supply of LINZESS on hand to meet U.S. commercial needs at this time and continues to closely monitor the situation. Ironwood’s ex-U.S. partners are responsible for the manufacturing and supply of linaclotide in their respective territories.
  • Advancing Phase III Clinical Development of IW-3718. Patient safety is one of Ironwood’s highest priorities and the company continues to work closely with clinical trial sites and investigators in an effort to protect the safety of patients enrolling in its clinical trials.

    • The COVID-19 pandemic has impacted enrollment in the Phase III clinical trials of IW-3718 for the treatment of refractory gastroesophageal reflux disease (GERD). Most of the clinical trial sites were not screening new patients during the second quarter due to the suspension of in-person procedures required to enroll patients and due to lower patient participation compared to pre-COVID levels. Many clinical sites have now resumed screening new patients in study IW-3718-301; however, enrollment continues to be slower than prior to the COVID-19 pandemic.
    • In July 2020, Ironwood announced that it reached alignment with the U.S. Food and Drug Administration (FDA) on certain updates to its IW-3718 Phase III clinical program, including a planned early assessment of efficacy in one of the two identical Phase III trials, in line with new FDA guidance on statistical considerations for trials impacted by COVID-19. See “GI Pipeline” section of this release for more information regarding these recent updates.
  • Update on Financial Guidance. Ironwood is reinstating its full year 2020 financial guidance as originally disclosed as part of its fourth quarter and full year 2019 financial results. Ironwood had previously withdrawn its full year 2020 financial guidance, with the exception of its adjusted EBITDA guidance, due to uncertainties regarding the potential for and magnitude of certain COVID-19-related impacts on its financial performance.

Second Quarter 2020 Financial Highlights1

(in thousands, except for per share amounts)

 

 

2Q 2020

2Q 2019

Total revenues

$ 89,432

$ 102,215

Total costs and expenses

56,719

80,638

GAAP net income from continuing operations

25,204

12,283

GAAP net income

25,204

12,283

GAAP net income per share – basic and diluted

0.16

0.08

Adjusted EBITDA

33,353

25,645

Non-GAAP net income

25,671

16,032

Non-GAAP net income per share

0.16

0.10

 
  1. Refer to the Reconciliation of GAAP Results to Non-GAAP Financial Measures table and to the Reconciliation of GAAP Net Income (Loss) from Continuing Operations to Adjusted EBITDA table at the end of this press release. Adjusted EBITDA is reconciled from GAAP Net Income (Loss) from Continuing Operations. There were no discontinued operations for the three and six months ended June 30, 2020. Refer to Non-GAAP Financial Measures for additional information.

Second Quarter 2020 Corporate Highlights

U.S. LINZESS

  • Total LINZESS prescription demand in the second quarter of 2020 included approximately 35 million LINZESS capsules, a 9% increase compared to the second quarter of 2019, per IQVIA.

    • Average weekly new-to-brand LINZESS prescription demand in June 2020 was 9,300, compared to an average of 8,000 in March 2020 (the beginning of the COVID-19 pandemic in the U.S.), an increase of over 15%, per IQVIA Patient Insights Edition.
  • LINZESS U.S. net sales are provided to Ironwood by AbbVie. In the second quarter of 2020, LINZESS U.S. net sales were $219 million, a 5% increase compared to $208 million for the second quarter of 2019. Ironwood and AbbVie share equally in U.S. brand collaboration profits. See the LINZESS U.S. Commercial Collaboration table at the end of the press release.

    • In connection with its acquisition of Allergan plc (together with its affiliates, Allergan), AbbVie recast LINZESS net sales previously reported by Allergan for periods beginning January 1, 2019 to conform with AbbVie’s revenue recognition accounting policies and reporting conventions for certain rebates and discounts. This recast did not result in any change to Ironwood’s historically reported collaborative arrangements revenue, or collaborative arrangements revenue policy. Ironwood continues to record collaborative arrangements revenue based on actual settlement payments received from AbbVie.
    • The difference between LINZESS net sales growth and prescription demand growth is primarily due to a decrease in inventory, partially offset by net price improvement.
    • LINZESS commercial margin was 75% in the second quarter of 2020 compared to the recast commercial margin of 63% in the second quarter of 2019, which Ironwood recalculated in connection with AbbVie’s recast of prior year financial information. The higher year-over-year margin was largely driven by higher LINZESS net sales and lower brand expenditure due to the majority of the Ironwood and AbbVie LINZESS field sales forces working remotely during a portion of the second quarter of 2020. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.
    • Ironwood recorded $87 million in collaboration revenue in the second quarter of 2020 related to sales of LINZESS in the U.S., compared to $75 million in the second quarter of 2019. See U.S. LINZESS Commercial Collaboration table at the end of the press release.
    • Net profit for the LINZESS U.S. brand collaboration, net of commercial and research and development (R&D) expenses, was $152 million in the second quarter of 2020 compared to $116 million in the second quarter of 2019. See U.S. LINZESS Full Brand Collaboration table below and at the end of this press release.

U.S. LINZESS Full Brand Collaboration1

(in thousands, except for percentages)

Three Months Ended

June 30,

 

2020

2019

LINZESS U.S. net sales as reported by AbbVie

$218,945

$207,716

AbbVie & Ironwood commercial costs, expenses and

other discounts

53,812

76,987

Commercial margin

75%

63%

AbbVie & Ironwood R&D Expenses

13,417

14,474

Total net profit on sales of LINZESS

$151,716

$116,255

Full brand margin

69%

56%

  1. All periods presented have been adjusted to conform with AbbVie’s revenue recognition accounting policies and reporting conventions. As a result, certain of the rebates and discounts that were previously classified within LINZESS U.S. net sales have been reclassified as LINZESS U.S. commercial costs, expenses and other discounts within Ironwood’s calculation of collaborative arrangements revenue. Refer to the U.S. LINZESS Full Brand Collaboration table at the end of this press release.

GI Pipeline

  • IW-3718. Ironwood is developing IW-3718, its gastric retentive formulation of a bile acid sequestrant for the potential treatment of refractory GERD. Refractory GERD affects an estimated 8 to 10 million adult Americans who continue to suffer from heartburn and regurgitation despite receiving treatment with proton pump inhibitors, the current standard of care. There are currently no FDA-approved treatment options available for the treatment of regurgitation associated with refractory GERD.

    • In alignment with the FDA, Ironwood made important updates to its Phase III program with IW-3718, as highlighted below:

      • Change in Phase III Primary Endpoint. The primary endpoint for the two identical Phase III clinical trials – IW-3718-301 and IW-3718-302 – has been changed from the previous responder endpoint to a continuous endpoint. The primary endpoint for the Phase III trials is now the assessment of change from baseline to week 8 in weekly heartburn severity scores, which is very similar to the primary endpoint in the IW-3718 Phase IIb trial and a previous key secondary endpoint in the Phase III trials.
      • Planned Early Assessment of Efficacy in IW-3718-302. In line with new FDA guidance on statistical considerations for trials impacted by COVID-19, Ironwood has stopped enrollment of study subjects into IW-3718-302 and plans to conduct a blinded early assessment of efficacy in that trial. The data are expected to remain blinded to Ironwood and be assessed by an independent data monitoring committee (IDMC) using pre-specified criteria that are consistent with certain of the study’s new primary and key secondary endpoints. Ironwood expects to report the outcome of the early assessment in the fourth quarter of 2020. IW-3718-301 is continuing to enroll patients. Under the planned assessment, the IDMC will make a non-binding recommendation to Ironwood.

        • If the IDMC determines the data met all pre-specified criteria, Ironwood plans to remain blinded and continue enrollment of the IW-3718-301 trial with the goal of announcing top-line results from both trials in the first half of 2021.
        • If the IDMC determines the data did not meet all pre-specified criteria, Ironwood plans to unblind and evaluate the data from IW-3718-302 to determine whether to stop the full Phase III program.
      • Decision on Long-term Safety Data Request. The FDA has indicated that a long-term safety study is not required in connection with a potential NDA submission. Ironwood previously announced that it was in discussions with the FDA regarding the FDA’s request that additional long-term safety data for IW-3718 in refractory GERD be included in connection with a potential NDA submission.
    • MD-7246. In May 2020, Ironwood and AbbVie announced top-line data from a Phase II trial evaluating MD-7246 in adult patients with abdominal pain associated with irritable bowel syndrome with diarrhea. The Phase II trial did not meet its primary or key secondary endpoints. Based on these findings, Ironwood and AbbVie are discontinuing the development of MD-7246.

Global Collaborations and U.S. Promotional Partnerships

  • U.S. Disease Education and Promotional Partnership with Alnylam Pharmaceuticals, Inc. (Alnylam). In August 2019, Ironwood and Alnylam announced a U.S. GI disease education and promotional agreement for Alnylam’s GIVLAARI™ (givosiran), an RNAi therapeutic targeting aminolevulinic acid synthase 1 for the treatment of adults with Acute Hepatic Porphyria.

    • Under this agreement, Ironwood receives fixed payments and royalties in the mid-teens percent on net sales generated from prescriptions or referrals from certain physicians related to Ironwood’s promotional efforts.
  • LINZESS in Japan. Ironwood recorded $0.5 million in royalties from Astellas Pharma Inc. (Astellas) in the second quarter of 2020.

    • Under its license agreement with Astellas, Ironwood receives royalties beginning in the mid-single-digit percent and escalating to the low double-digit percent, based on annual net sales of LINZESS in Japan. In 2020, Astellas will assume responsibility for linaclotide active pharmaceutical ingredient (API) manufacturing in Japan.
    • LINZESS net sales in Japan for the three months ended June 30, 2020, as reported by Astellas, were approximately ¥1.6 billion, a 12% increase compared to the three months ended June 30, 2019.
  • LINZESS in China. Under Ironwood’s collaboration agreement with AstraZeneca, AstraZeneca has exclusive rights to develop, manufacture, and commercialize linaclotide in China (including Hong Kong and Macau) and is responsible for all expenses associated with these activities beginning in 2020. Ironwood receives royalties beginning in the mid-single-digit percent and increasing up to 20 percent based on annual net sales of LINZESS in China.

Second Quarter Financial Results

  • Total Revenues. Total revenues in the second quarter of 2020 were $89.4 million, compared to $102.2 million in the second quarter of 2019.

    • Total revenues in the second quarter of 2020 consisted of $86.5 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $1.8 million in linaclotide royalties, $0.9 million in co-promotion revenue, and $0.2 million in other revenue.
    • Total revenues in the second quarter of 2019 consisted of $75.0 million associated with Ironwood’s share of the net profits from the sales of LINZESS in the U.S., $24.9 million in sales of linaclotide API, $1.5 million in co-promotion revenue, and $0.8 million in royalty revenue.
  • Operating Expenses. Operating expenses in the second quarter of 2020 were $56.7 million, compared to $80.6 million in the second quarter of 2019.

    • Operating expenses in the second quarter of 2020 consisted of $34.6 million in SG&A expenses and $22.1 million in R&D expenses.
    • Operating expenses in the second quarter of 2019 consisted of $43.2 million in SG&A expenses, $28.8 million in R&D expenses, $11.3 million in cost of revenues, and $0.5 million in restructuring expenses, partially offset by a gain on lease modification of $3.2 million.
  • Interest Expense. Net interest expense was $7.0 million in the second quarter of 2020 primarily in connection with the company’s convertible senior notes. Interest expense recorded in the second quarter of 2020 included $1.8 million in cash expense and $5.5 million in non-cash expense.

    • Net interest expense was $8.8 million in the second quarter of 2019, in connection with the 8.375% Notes due 2026 prior to their redemption in September 2019 and the outstanding 2022 Convertible Notes. Interest expense recorded in the second quarter of 2019 included $4.7 million in cash expense and $4.7 million in non-cash expense.
  • Loss on Derivatives. Ironwood recorded a loss on derivatives of $0.5 million in the second quarter of 2020 as a result of the change in fair value of the convertible note hedges and note hedge warrants issued in connection with the 2022 Convertible Notes.

    • Ironwood recorded a loss on derivatives of $0.7 million in the second quarter of 2019 related to the change in fair value of the convertible note hedges and note hedge warrants issued in connection with the 2022 Convertible Notes.
  • Net Income.

    • GAAP net income was $25.2 million, or $0.16 per share, in the second quarter of 2020, compared to GAAP net income of $12.3 million, or $0.08 per share, in the second quarter of 2019.
    • Non-GAAP net income was $25.7 million, or $0.16 per share, in the second quarter of 2020, compared to non-GAAP net income of $16.0 million, or $0.10 per share, in the second quarter of 2019.
    • Non-GAAP net income excludes the impact of mark-to-market adjustments on the derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses and separation expenses. These adjustments are reflected in non-GAAP net income (loss) in the second quarter of 2020 and 2019 presented in this press release. See Non-GAAP Financial Measures below.
  • Net Income from Continuing Operations. Beginning in the second quarter of 2019, Ironwood recast historical operations related to Cyclerion Therapeutics, Inc. (Cyclerion) as discontinued operations.

    • Ironwood recorded $25.2 million and $12.3 million in GAAP net income from continuing operations during the second quarter of 2020 and 2019, respectively. Ironwood did not incur any Cyclerion-related expenses during the second quarter of 2020 or 2019.
  • Adjusted EBITDA. Adjusted EBITDA was $33.4 million in the second quarter of 2020, compared to $25.6 million in the second quarter of 2019.

    • Adjusted EBITDA is calculated by subtracting net interest expense, taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, and separation expenses from GAAP net income (loss) from continuing operations. See Non-GAAP Financial Measures below.
  • Cash Flow Statement and Balance Sheet Highlights.

    • Ironwood ended the second quarter of 2020 with $253.3 million of cash and cash equivalents.
    • Ironwood generated $20.1 million in cash from operations in the second quarter of 2020.
  • 2020 Financial Guidance

    • Ironwood now expects:

 

2020 Guidance

LINZESS net sales growth

Mid-single digit % increase

Total Revenue

$360 – $380 million

Adjusted EBITDA1

>$105 million

  1. Adjusted EBITDA is calculated by subtracting net interest expense, taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, separation expenses, and loss on extinguishment of debt from GAAP net income (loss) from continuing operations.

Non-GAAP Financial Measures

Ironwood presents non-GAAP net income (loss) and non-GAAP net income (loss) per share to exclude the impact of net gains and losses on derivatives related to our 2022 Convertible Notes that are required to be marked-to-market. Ironwood also excludes restructuring, and separation-related expenses from non-GAAP net income (loss), if any. These adjustments, as applicable, are reflected in the non-GAAP net income (loss) in the second quarter 2020 presented in this press release. Non-GAAP adjustments are further detailed below:

  • The gains and losses on the derivatives related to our 2022 Convertible Notes may be highly variable, difficult to predict and of a size that could have a substantial impact on the company’s reported results of operations in any given period.
  • Restructuring expenses are considered to be a non-recurring event as they are associated with distinct operational decisions. Included in restructuring expenses are costs associated with exit and disposal activities.
  • Separation expenses include costs associated with the spin-off of Cyclerion from Ironwood. These costs are considered non-recurring as the separation was a significant and unusual event. Certain of these expenses do not appear as non-GAAP adjustments used to calculate adjusted EBITDA, as such expenses are included as part of discontinued operations, and are therefore excluded from the calculation of GAAP net income (loss) from continuing operations.

Ironwood also presents adjusted EBITDA, a non-GAAP measure, as well as guidance on adjusted EBITDA. Adjusted EBITDA is calculated by subtracting net interest expense, taxes, depreciation, amortization, mark-to-market adjustments on derivatives related to Ironwood’s 2022 Convertible Notes, restructuring expenses, and separation expenses from GAAP net income (loss) from continuing operations. The adjustments are made on a similar basis as described above related to non-GAAP net income (loss), as applicable.

Management believes this non-GAAP information is useful for investors, taken in conjunction with Ironwood’s GAAP financial statements, because it provides greater transparency and period-over-period comparability with respect to Ironwood’s operating performance. These measures are also used by management to assess the performance of the business. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. For a reconciliation of non-GAAP net income (loss) and non-GAAP net income (loss) per share to GAAP net income (loss) and GAAP net income (loss) per share, respectively, and for a reconciliation of adjusted EBITDA to net income (loss) from continuing operations on a GAAP basis, please refer to the tables at the end of this press release.

Ironwood does not provide guidance on GAAP net income (loss) from continuing operations or a reconciliation of expected adjusted EBITDA to expected GAAP net income (loss) from continuing operations because, without unreasonable efforts, it is unable to predict with reasonable certainty the non-GAAP adjustments used to calculate adjusted EBITDA including, without limitation, the mark-to-market adjustments on the derivatives related to its 2022 Convertible Notes. These adjustments are uncertain, depend on various factors and could have a material impact on GAAP net income (loss) from continuing operations for the guidance period.

Conference Call Information

Ironwood will host a conference call and webcast at 8:30 a.m. Eastern Time on Thursday, August 6, 2020 to discuss its second quarter 2020 results and recent business activities. Individuals interested in participating in the call should dial (866) 324- 3683 (U.S. and Canada) or (509) 844-0959 (international) using conference ID number 6183913. To access the webcast, please visit the Investors section of Ironwood’s website at www.ironwoodpharma.com at least 15 minutes prior to the start of the call to ensure adequate time for any software downloads that may be required.

Contacts

Investors and Media:

Meredith Kaya, 617-374-5082

[email protected]

Media:

Beth Calitri, 978-417-2031

[email protected]

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